Daniel Boone III, who manages the Calvert Social Investment Equity Fund (CSIEX), has socially responsible investing in his blood. When managing his church's money in the 1980s, he divested the companies that did business with South Africa, and has been at the helm of the $900 million Calvert portfolio since September, 1998. As a descendant of the famous frontiersman Daniel Boone, it's no surprise when he says he loves the outdoors. Boone is a first-time winner of the S&P/BusinessWeek Excellence in Fund Management Awards in 2004.
BusinessWeek's Lauren Young recently spoke with Boone about his investing strategy. Edited excerpts of their conversation follow:
Q: How do you pick stocks in your portfolio?
A: The first thing that's different is that we really do focus on a longer term. We're looking for 2005 and 2006 winners. This year's portfolio has to be largely carried by the decisions we made before. I don't think you can add value by focusing on what stocks have momentum now. You've got to look beyond that for good things to happen.
The process that we go through is very simple. At Atlanta Capital [Boone's firm, which manages the fund], we're operating in a universe of high-quality stocks. Most companies have 10 years of history. They have some competitive advantage that gave them the ability to grow more consistently than the average stock
Q: Is it hard to use social screens to pick stocks?
A: Actually, there's a lot of overlap in terms of the companies that match Calvert's social screens and our financial screens. We're fundamental investors, both top-down and bottom-up. We look for abnormalities in top-down economic sectors and groups. We study demographics. We look at long-term charts.
When things go off a long-term trend, we ask: Why won't it come back to that trend? A simple example is interest rates. When they're at or near 50-year lows, we ask: How low do you want to be? Will rates go up? We're saying: Yes, they will, so how will that impact the portfolio?
Eighteen months or two years ago, capital spending in technology was at 40-year low. We made a bet this won't continue. The U.S. competitive position depends on us using technology -- our competitive weapon against people in India, China, and wherever is having higher value and making quicker, better decisions. Companies could delay spending, but they have to come back and spend.
Q: Is growth important?
A: Yes, but it's more important to know why a company will grow. Even great companies with great growth rates can be too popular. You have to have a discipline. We don't believe any one model works. We use six or eight to come to a conclusion that we can double our money in five years.
Q: I read in your fund report that you're concerned about inflation.
A: We're in the sweet spot of economic expansion. My point was: We aren't concerned, we didn't share the concern about unemployment or lack of unemployment. We weren't concerned about this economy rolling back over. We're back to a typical expansion. It took a long time to get started and get momentum. Now, from a very low point, we're in a normal economic expansion.
Every expansion is different. The consumer never got killed, but business had as bad a recession as in the late '70s. We see that coming back in a very normal way.
Inflation is the one area we see that no one seems to be concerned about. We're concerned that as you normally go through an expansion, pricing goes up, operating rates go up. We may see more inflation. The key will be if we get a little moderate amount. That will be fine.
The danger to this market down the road, a year from now, is that inflation is picking up, and the Fed is reversing its course. They've been leaning against the wind to slow down the economy. That would stop the market from going up.
Q: What's your favorite social issue?
A: I'm on the board for Habitat for Humanity -- the Atlanta affiliate. It's the second-largest U.S. affiliate. We've built the second-most number of homes.
There are a lot of issues I care about. How you treat your employees is a particular thing of mine. I believe so strongly you get a better, [more] productive workforce if you have a management that's thinking about the welfare of their employees. In the end you can afford to pay them more, they'll be so much more productive, and we look for that in companies.
Q: What's the Boone connection? Do you have a coonskin hat?
A: I like to think of myself as an adventurist. There's a lot of Daniel Boone descendents around. It goes back 11 generations. Boone was born in 1728. He had 9 kids and 13 siblings. Those large families multiplied quickly. I'm a descendent from Squire Boone. He moved to North Carolina from Pennsylvania when he was five, looking for more space, more land, and religious independence. He explored Tenessee and then came back and stayed in North Carolina. Then came to Georgia.
I had a coonskin cap once. I don't have one right now -- but that song stuck in people's minds back from the TV series. Once, when I was substitute teacher paying my way through grad school, this class of second graders started singing the song from the TV show. "Daniel Boone was a man. Yes, a big man. With an eye like an eagle and as tall as a mountain was he..." Some people get excited and start bursting out in song when they meet you. It makes you tougher.